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‘Regulation insulated India from economic crisis’


New Delhi : The current global financial crisis, the worst in six decades, is expected to bottom out from the end of this year even as India has managed to emerge largely unscathed, former central bank governor Y.V. Reddy has said.

“India has been largely protected because of the decisions we took,” Reddy said at the launch of his new book – “India and the Global Financial Crisis: Managing Money and Finance” at the India Habitat Centre here.

“This was because of the regulatory framework that restricted exposure of our banks and financial institutions to risky financial products,” he told the event Tuesday evening, attended by top bureaucrats, technocrats and industrialists.

Another former governor of the Reserve Bank of India (RBI), C. Rangarajan, who released the book agreed with Reddy’s view. “There will be certainly be a dip in rate of decline of economies by end 2009. Things will start to look up from 2010-11,” he said.

“Asia, led by India and China, will be among the first to recover.”

Bimal Jalan, also a former central bank governor, acknowledged that there were strong criticisms in the past that the policies of the RBI were extremely conservative. But he also felt, like his former colleagues, that India has managed to be where it is due to such policies.

“We at the RBI took decisions like only partial capital account convertibility, which did not go down well with many people here and abroad. But such regulatory decisions have helped us,” said Jalan.

Reddy added that the same policies which India has been following were now being lauded the world over for their “foresight” and “innovativeness” as there has been no defaults by banks and their financial health remained sound.

“What is happening across the globe is due to regulatory failure. Firstly, some parties such as hedge funds and rating agencies were regulated very, very lightly. Then there was a failure to understand derivative products,” he said.